Sabah rapid economic development has led to the heavy reliance on migrant workers from Indonesia and the Philippines, in which a majority of them are working illegally. However, the federal and state governments have been trying to reduce the dependency on undocumented migrant workers since the outset by taking several early initiatives to overcome the labour shortage in this state in Borneon Malaysia. This paper examines the economic development and the efforts the state has taken together with the federal government as well as the private sector in Sabah to cope with the labour shortage in the early days of independence until the 1980’s. Two major initiatives were discussed, namely the establishment of the Migration Fund Board in the 1960’s and Sabah Manpower Immigrant Centre in the 1980’s. Both initiatives have failed to achieve their goals in addressing labour shortage. As a consequence, the best way to deal with the problem of labour shortage was hiring migrant workers from neighbouring countries, particularly Indonesia and the Philippines and most of them had worked illegally. Therefore, the dependency on illegal migrant workers has eventually become a key element to the present-day economic development in Sabah.